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As Chattanoogans scramble to make sense of and respond to the coronavirus threat, business leaders and owners are having to continually cope with jarring new information and figure out how best to respond.

The stock market has fallen, global supply chains and sales have been disrupted, schools and colleges have closed facilities and shifted to online learning, and travel has been curtailed. Many companies are already beginning to see, or anticipate, a decline in their financial performance.

To help navigate the changing economic landscape, Stuart McCallum, a partner in HHM's Management Advisory Services department, offers these steps to help mitigate the financial risks of the virus to your company.

Review your insurance policy and agreements. As companies prepare for a loss of income from the virus, it's crucial your organization understands your insurance policy. Business interruption insurance, sometimes called loss insurance, is a type of insurance that covers the economic losses that a business suffers after a disaster or peril. Whether your business will be covered for pandemic-related losses will depend upon your insurance policy along with other facts and circumstances.

A great place to start assessing whether or not you could file a business interruption claim would be to review your property and casualty agreement. Some agreements may specifically mention "nonrecurring events" without a further definition. Agreements may also include coverage of natural disasters that are not further defined and do not specify direct physical damage related to the loss. This vagueness in the language may either permit or open the door for you to file a claim for the loss. If you have specific questions regarding your rights as an insured, you should consult your attorney or insurance agent.

Keep track of important documentations. Documentation is key. It is vital you stay organized and be intentional. Legwork at the beginning can save a lot of time and effort on the back end. You will need to gather past financial statements, tax returns, business contracts, employee wage statements, paid invoices, and other records that may convey or support business loss. Furthermore, it is important to keep your current financial statements up to date so that you can monitor changes. Keep records of shipment and appointment cancellations, employee call-outs, and service interruption (gas, electricity, fuel, and water) as these will be needed for a business interruption claim. Be sure to document if, or when, a supplier misses a shipment or temporarily shutters altogether. The spread of the illness through contact tangible surfaces may constitute property damage for insurance purposes. This might impact the way your company handles returns.

Conduct a risk assessment. For a pandemic like Covid-19, it is encouraged that a risk review be completed to evaluate the impact of the company and employees. The best assessment and ability to measure an interruption of your company, or a loss, is through identifiable and measurable factors. The main challenge will be that some impacts to your company may be vague and something that is not easily communicated. Trackable data points could be sales volumes, customer door swings, web traffic, or bottom-line profits.

Assessment of the supply chain. Most companies interact with a supply chain, whether it is a restaurant receiving a vegetable shipment or an electronics manufacturer's order of semiconductors. The companies along that supply chain, from start to finish, are only as strong as the weakest company in the chain. For example, an electronics manufacturer likely cannot deliver their product if they don't receive semiconductors from their supplier.

"Developing a full chart of your supply chain will help to identify any potential vulnerabilities," said John Eaves, manufacturing expert at HHM. "This chart should go well beyond your first-, second-, and third-tier suppliers, drilling all the way down to the raw materials,".

Understanding the capabilities of your supply chain will make your own strategic possibilities all the more evident.

Review advertising budget. Your budget for expenses such as advertising likely stays relatively the same throughout the year, fluctuating only marginally for seasonality. For example, you probably have a monthly advertising spend that works well on a per unit or per customer basis. With the social distancing we are seeing in consumers, it is possible that your traditional sales will decline sharply during this fearful time. In light of this expectation of possible declining sales volumes through traditional channels, make sure to advertise where your customers are still frequenting. For example, if people aren't driving to work for the next month then morning radio advertisements won't have the same audience draw as normal. Instead, investigate the possibility of targeted search ads online or other media channels.

Be proactive. Business leaders tend to be proactive and resilient through tough times. For example, one dealership we spoke with found an opportunity to combat unsure customers by selling disinfectant spray foggers for preowned vehicles. By disinfecting the vehicle, the customer's mind is put at ease and the store generates additional gross profits. Perhaps grocers can offer more prepared meal options for a customer base that is unfamiliar with cooking seven meals per week at home. Many restaurants have switched to a to-go, or touch-free models involving pick up or delivery.

Beware of head count trimming. While trimming headcount may be advisable in some situations, be careful that you aren't terminating any individuals viewed as leaders. It may make sense now during the height of the hysteria, but will you feel that same way when this is all behind us in a month or in a year? Investing in your key employees by retaining them through financial difficulties and uncertainty will build trust and loyalty among your best employees.

Communicate. Timely and honest communication with your employees and customers will be key. Being mindful about your communication will maintain the trust of your network.

Stuart McCallum is a partner in HHM's Management Advisory Services department and is an American Society of Appraisers (ASA) accredited senior appraiser.

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Stuart McCallum / Contributed photo

 

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